India wholesale price deflation accelerates much more than expected

Wholesale prices fell more than expected in India, justifying the recent RBI rate cuts, but data has failed to push stocks higher, indicating market players are awaiting more cues for further rate cuts.

Dragged by the global oil prices, the WPI index fell 2.09% from a year earlier in February, deeper than the 0.39% drop in January and compared to a market consensus of around a 0.7% fall.

The WPI for primary articles, which account for 20% of the index, rose 1.43%, while manufactured products with 65% weightage was almost flat. Fuel and power prices, which have a weightage of 15%, were down 14.7% year-on-year.

Reserve Bank of India cut its benchmark policy repo rate by 25 basis points to 7.5% at a surprise meeting on 4 March. RBI cited slowing inflation, weak growth and important government reforms for the rate cut.

RBI governor Raghuram Rajan said that disinflation is evolving along the path set out by the central bank a year ago and at a faster pace than earlier envisaged.

The uncertainties surrounding any inflation projection are, however, not insignificant, he added.

The BSE Sensex, India's benchmark share index, which was down 70 points from its previous close ahead of the data, extended losses to levels as much as 110 points below Friday's close.

The market is now awaiting for the Fed policy review on Wednesday as tighter US policy would squeeze capital inflows weakening prospects of Indian shares and currency.

The Indian rupee has already fallen to a two-month low of 63.12 with the USD index rallying to a 12-year high. On Monday, the USD/INR shed some points helped by correction in the dollar against major currencies globally. The pair traded at 62.56, down from 62.99 at close on Friday an hour after the data.